At RIMES’ recent round table in Chicago, buy-side industry participants got a chance to weigh in on their index and benchmark data challenges. Various representatives of asset management firms and custodians, including those working in data management, performance, risk and compliance, all attended the event.
Many attendants spoke to the difficulties that they are facing in keeping their data accurate, appropriate and complete, as they seek to overcome many other pressures.
Participants in the Chicago forum commented on their challenges at a time when buy-side firms are already coping with difficulties stemming from a growing need for benchmarks and the rising costs that they present.
The Chicago event was introduced with the RIMES Buy-Side Survey, which provided statistical insight into the challenges that institutions are facing. In addition, the round table touched on important findings that were presented at a strategic advisory session that Gartner held in New York City in May.
During the session, Mary Knox, who serves as research director of Banking and Investment Services at the global consulting firm, went over data management best practices and the challenges that exist in this area.
The RIMES Buy-Side Survey dove into the index and benchmark data challenges of institutions. This was the second Buy-Side Survey conducted by the managed data services provider, and the moderator provided numerous comparisons between the two.
The second RIMES Buy-Side Survey culled responses from 107 respondents, and the outcome reflected the trends that exist in the company’s customer and prospect base.
State of the data
Many buy-side institutions are making an effort to harness ever-increasing amounts of information as they turn to novel investment strategies and use more asset classes. In the RIMES poll, 73 percent predicted their index data licensing costs will move higher. This compared to 82 percent in the previous Buy-Side Survey.
The moderator noted that while this fraction is still high, it has tracked lower. He emphasized that many industry participants have made efforts to bring these expenses down, since they are often substantial for buy-side firms.
In addition, 67 percent of respondents across all departments forecast that the number of indexes and benchmarks will increase. This figure was slightly lower than in the last rendition of the poll.
State of the players
Some institutions are more focused on matters like who is responsible for important data, and who has ownership of it. Buy-side firms could easily encounter challenges determining whether they should centralize their information, instead of spreading it out.
This part of the survey asked individuals what they believe their index and benchmark data management priorities will be in 2014, split between central management functions and end users.
Of those who took part, 48 percent indicated their centralization efforts would focus on central management functions, whereas 26 percent indicated that they would prioritize the end users. The moderator noted that while there are certainly benefits that come along with centralization, one potential cost is agility.
Participants weigh in
During the Chicago round table, participants got the chance to weigh in on the challenges they are facing. They spoke to a range of difficulties, from the velocity of requests to concerns about centralization.
Velocity of requests
Several respondents identified this as a challenge. Staff members working for buy-side firms frequently request certain benchmarks – or maybe a group of benchmarks – to assess their performance. However, they often want these resources as soon as possible, which can leave the operational departments that supply them in the lurch.
One representative commented on the various difficulties that can crop up in this space.
“We have limited amounts of time each month to install something into production. We always check any data that comes from a vendor,” he said. “The problem is the communication with the end users. If a client makes a request, we need to have their end user requirements as early as possible in the process.”
“What usually happens is someone forgets to notify us and then we have to cope with people saying they needed this yesterday,” the representative added. “We have to reply that it will take a certain number of weeks … We have made some progress, but we are not quick enough to market on any request we receive last-minute.”
Data storage challenges
Another matter that the round table covered was data storage difficulties. Some buy-side firms are striving to have one type of data stored in a data warehouse. However, if they do, they might face difficulties meeting the needs of their end users.
A participant spoke to the situation at his firm, emphasizing the challenges involved.
“I think you need top-down leadership to drive everyone toward a single version of the truth in terms of the guy who runs the profit area or the asset class,” he said.
“If he has two PMs, regardless of where they are sitting, he wants them to speak the same language. You have to find a balance between what people are comfortable working with, what they need on a day-to-day basis, versus what gets reported back into the business for consistent metrics, giving an apple to apple view of how people manage portfolios across the globe,” the individual continued.
“Where I think it is becoming even more challenging is on the reporting side,” he noted. “There are different comfort levels between what you deliver to end-users internally and what you send to your clients. From a warehousing, distribution and service architecture perspective, getting all these things tied together is a “heavy lift.”
How can buy-side firms address their challenges
Buy-side firms are running into many index and benchmark data challenges in the current environment. Fortunately, there are several different resources they can leverage to address these difficulties.
Institutions that are considering the best way to store their information should carefully evaluate the costs and benefits associated with each type of architecture. While many may lean toward centralization, they should note that relying on such an approach can make one’s infrastructure less nimble.
One technique buy-side firms can use is getting an in-depth assessment from RIMES. By doing so, institutions can conduct a comprehensive review of their existing data management processes and infrastructure. Taking this approach could save a company a lot of time and energy.